Unlawful Consideration and Object

What do you mean by unlawful consideration and object?

Meaning of Unlawful Consideration and Object: – Two things are necessary for a contract to be a valid contract i.e., a valid object and a valid consideration. If they are not, hence it is Unlawful consideration. If the object and consideration are not valid, then the contract is said to be void.

Therefore the Indian Contract Act provides us with the parameters that make up such legitimate consideration and objects of contract.

Section 23 of the Indian Contract Act clearly states that the consideration or object of a contract is considered a valid consideration or object and if they are not, the object and consideration shall be deemed to be unlawful. Section 23 of the Indian Contract Act, 1872, specifies three issues, for example, consideration for the agreement, the object of the agreement and the agreement in essence. Section 23 makes a restriction on the freedom of an individual in connection to going into agreements and subjects the privileges of such individual to the overriding contemplations of public policy and the other provisions articulated under it. Section 23 additionally discovers its bearing from Section 264.

The word “Object” used in Section 23 indicates and signifies “purpose” and doesn’t imply importance in a similar sense as “consideration”. Therefore, despite the fact that the consideration of an agreement might be legal and genuine, that won’t stop the agreement from being unlawful if the purpose (object) of the agreement is illicit. Section 23 limits the courts since the section isn’t guided by the thought or motive, to the object of the exchange or transaction fundamentally and not to the reasons which lead to the equivalent.

What consideration and object are unlawful?

The consideration and objects which are unlawful are given as follows: –

1. Specifically Forbidden by Law;
2. Such a nature that they would defeat the purpose of the law;
3. Fraudulent Consideration or Object;
4. Defeats any rules in effect;
5. Involves injury to any other person or property;
6. The courts regard them as immoral and
7.  Opposed to Public Policy.

Explanation: –

1. Forbidden by law

• When the object of the contract or the consideration is prohibited by law, those consideration or objects are not lawful anymore. They become illegal. So any such contract can no longer be valid.
• The unlawful consideration of the object includes acts that are specifically punishable by law. It also includes those which the appropriate authorities prohibit through rules and regulations. But if the rules made by such officers are not in conformity with the law, then these laws will not apply.
• For Example: – ‘A’ get a license from the Forest Department to cut grass of a certain area. Department officials told him that he could not pass on such interest to any other person. But there is no such law in the Forest Act. So ‘A’ sold his interest to ‘B’ and the contract was deemed valid.

2. Consideration or Object Defeats the Provision of the Law

• This means that if the contract is trying to defeat the intent of the law. If the courts find that the real purpose of the parties to the agreement is to fail the provisions of the law, then the contract will set aside.
• For Example: – ‘A’ and ‘B’ enter into an agreement, where ‘A’ is the debtor and ‘B’ will not accept any limitation. However, this is done, however, to defeat the intent of the Limitation Act, and therefore the courts may consider the contract void due to the unlawful object.

3. Fraudulent Consideration or Object

• A lawful consideration or object can never be fraudulent. Agreement with Unlawful fraudulent considerations or object is void by nature.
• For Example: – ‘A’ decides to sell goods to ‘B’ and smuggled out of the country. This is a fraudulent consideration which makes the contract void. If ‘A’ does not deliver goods on his promise, then ‘B’ cannot recover the money under the law.

4. Defeats any Rules in Effect

• If the consideration or the object is against any rules in effect for the time being in the country, then it will not be a lawful consideration or objects. So the contract thus formed will not be valid.

5. When they cause Injury to another Person or Property

• In legal terms, an injury means wrongful harm by one offender to another person. Therefore if the object or consideration of the contract cause damages another person or property, it would be unlawful consideration.
• For Example: – The contract to publish a book that infringes another person’s copyright will be void. This is because the consideration here is unlawful and injures another person’s property, i.e., its copyright.

6. When Consideration is Immoral

• If an object or consideration is considered immoral by the court, then such object and consideration are immoral.
• For Example: – ‘A’ lent money to ‘B’ to get divorced from her husband ‘C’ and there was an agreement between ‘A’ and ‘B’, that if ‘B’ get divorced then ‘A’ will get married to ‘B’. But the court ruled that ‘A’ cannot recover money from ‘B’ as the contract is void due to unlawful consideration.

7. Consideration is opposed to Public Policy

• For the betterment of the community, we prohibit certain contracts in the name of public policy. But in this case, we do not use public policy in the broad sense. If that were the case, it would have motivated the individual’s personal freedom to enter into contracts. Therefore, public policy is used in a limited scope for consideration and object of the law.
• So let’s look at some agreements that are against public policy: –
  • Trade with the Foreign Enemy: – Entering into a contract with the person of a country with which India is at war is a void agreement. For example, a businessman who was contracting with a Pakistani citizen during the Kargil War.
  • Stifling Prosecution: – This is universal that the natural course of law and such contracts are void. For example, A agrees to sell land to B if he does not participate in criminal proceedings against him.
  • Maintenance and Champerty: – Maintenance agreement is when a person promises to maintain a suit in which he has no real interest. And when a person agrees to assist another party in litigation for damages or a portion of the proceeds, then the Champerty occurs.
  • An agreement for traffic in public offices.
  • Agreement to create a monopoly.
  • An agreement for brokerage marriage for the rewards.
  • Interference with the Courts: – An agreement which is intended to induce any judicial or state officials to do corrupt work and interfere in legal proceedings.

Case laws

1. Saregama India Ltd. vs. Suresh Jindal and Ors. AIR 2006 Cal 340, 2007 (34) PTC 522 Cal

It was held that in future work the owner of the copyright can withdraw the copyright of any person in whole or in part for the copyright or any part thereof or once the assignment of copyright has been made. The act is treated like a proprietor of the copyright.

2. Bovard vs. American Horse Enterprises

The California Court of Appeals for the Third District refused to execute an agreement for the payment of promissory notes used to acquire the drug-making organization and similar goods. Even though the items sold were not, in fact, illegal, the court refused to honour the agreement for public policy concerns.